Transcript library.corporate

Acquisition of Point Beach
Nuclear Plant
December 20, 2006
Cautionary Statements And Risk Factors
That May Affect Future Results
Any statements made herein about future
operating results or other future events are
forward-looking statements under the Safe
Harbor Provisions of the Private Securities
Litigation Reform Act of 1995. Actual results
may differ materially from such forward-looking
statements. A discussion of factors that could
cause actual results or events to vary is
contained in the Appendix herein and in the
Company’s SEC filings.
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Point Beach Nuclear Plant – Acquisition
Overview
• Purchase of 100% of Point Beach Nuclear Plant
– Owner: Wisconsin Electric Power Company, d.b.a. We Energies,
a subsidiary of Wisconsin Energy Corp.
– Operator: Nuclear Management Company (NMC) 1
• Purchase price of $998 million includes $215
million for fuel inventories, non-fuel inventories
and other assets
• 1,033 MW dual unit plant
• Long-term Purchase Power Agreement (PPA) with
We Energies for 100% of output
• Balanced financing plan
• Expected to close in the third quarter of 2007
(1) Operating agreement to be terminated at closing
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Point Beach Nuclear Plant Overview
• Plant: 1033 MW, dual-unit PWR
– Unit 1: 67 MW uprate planned for 2010
– Unit 2: 67 MW uprate planned for 2011
• Commercial Operation
– Unit 1, 1970; Unit 2, 1973
• License Expiration
– Unit 1, 2030; Unit 2, 2033
– Received 20 year license extension for each unit in 2005
• Plant in good material condition
– Significant recent capital investment
• Staff: ~660 full-time employees
• Refueling cycle: 18 months
• Location: ~30 miles SE of Green Bay, Wisconsin
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Transaction Summary
Purchase Price
$998 million
Plant (1)
$783 million ($758 per kW)
Fuel, Inventory, Other $215 million
PPA Counterparty
We Energies, A- S&P Senior Unsecured Rating
PPA Terms
- Unit Contingent with option for replacement
power
- 100 percent of output through current license
period (Unit 1 – 2030, Unit 2 - 2033) (2)
- We Energies has an option to purchase the
additional power available from the uprate
Decommissioning
Transfer of at least $360 million at close
Expected Closing
3Q 2007
(1)
(2)
Excludes nuclear fuel and non-fuel components
We Energies has the option, subject to regulatory approval, to choose a PPA term of 16/17 years
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Key Approvals Required
• FPL Energy
– Federal Energy Regulatory Commission
– Nuclear Regulatory Commission
– Department of Justice / Federal Trade
Commission
• We Energies
– Public Service Commission of Wisconsin
Expect 3Q 2007 Closing
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Strategic Rationale
• Attractive economics
• Leverages FPL’s nuclear expertise
– Opportunity to enhance operations from current levels
– Leverages successful integration of Seabrook and Duane
Arnold
– Further builds nuclear scale
• Improves FPL Energy portfolio
diversification
• Low-cost baseload producer in Midwest
market
– Expands nuclear presence in the Midwest
– Complements FPL Energy wind portfolio in region
• Consistent with FPL Group’s industry
leading environmental strategy
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Financially Attractive
• Purchase made at an attractive price
– $758/kW excluding fuel and non-fuel components
– Transaction multiple 6.3x EBITDA (2008 to 2012 avg.)
– Escalating PPA prices
• Positive impact on earnings
– Accretive to EPS in 2008
– Accelerating accretion following expected power uprate in
2010
• Attractive financial returns
– Strong and stable contracted cash flows
– Substantial NPV
– ROE in mid-teens
EBITDA = Earnings before interest, taxes, depreciation, and amortization
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Financing Consistent with
FPL Group Plan
• Continued commitment to strong credit quality
• Anticipate approximately 50% / 50% debt to equity
ratio
• Specific financing to be integrated into overall FPL
Group financing plan
– Impact of wind capital expenditure profile – ‘07 + ‘08
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Summary
• Financially attractive
• Attractive long-term contract with an important and
strong existing FPL Energy customer
• High quality asset with moderate risk profile
• Leverages outstanding nuclear operating
capabilities
• Enhances FPL Energy portfolio diversification
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Appendix
Cautionary statements and risk
factors that may affect future results
In connection with the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 (Reform Act), FPL Group, Inc. (FPL Group) and Florida Power
& Light Company (FPL) are hereby providing cautionary statements identifying important factors that could cause FPL Group's or FPL's actual results to differ
materially from those projected in forward-looking statements (as such term is defined in the Reform Act) made by or on behalf of FPL Group and FPL in this
presentation, on their respective websites, in response to questions or otherwise. Any statements that express, or involve discussions as to, expectations, beliefs,
plans, objectives, assumptions or future events or performance (often, but not always, through the use of words or phrases such as will likely result, are expected
to, will continue, is anticipated, believe, could, estimated, may, plan, potential, projection, target, outlook) are not statements of historical facts and may be forwardlooking. Forward-looking statements involve estimates, assumptions and uncertainties. Accordingly, any such statements are qualified in their entirety by
reference to, and are accompanied by, the following important factors (in addition to any assumptions and other factors referred to specifically in connection with
such forward-looking statements) that could cause FPL Group's or FPL's actual results to differ materially from those contained in forward-looking statements
made by or on behalf of FPL Group and FPL.
Any forward-looking statement speaks only as of the date on which such statement is made, and FPL Group and FPL undertake no obligation to update any
forward-looking statement to reflect events or circumstances, including unanticipated events, after the date on which such statement is made. New factors emerge
from time to time and it is not possible for management to predict all of such factors, nor can it assess the impact of each such factor on the business or the extent
to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statement.
The following are some important factors that could have a significant impact on FPL Group's and FPL's operations and financial results, and could cause FPL
Group's and FPL's actual results or outcomes to differ materially from those discussed in the forward-looking statements:
FPL Group and FPL are subject to complex laws and regulations and to changes in laws and regulations as well as changing governmental policies and regulatory
actions, including initiatives regarding deregulation and restructuring of the energy industry and environmental matters. FPL holds franchise agreements with local
municipalities and counties, and must renegotiate expiring agreements. These factors may have a negative impact on the business and results of operations of
FPL Group and FPL.
•FPL Group and FPL are subject to complex laws and regulations, and to changes in laws or regulations, including the Public Utility Regulatory Policies Act of
1978, as amended, the Public Utility Holding Company Act of 2005, the Federal Power Act, the Atomic Energy Act of 1954, as amended, the Energy Policy Act of
2005 (2005 Energy Act) and certain sections of the Florida statutes relating to public utilities, changing governmental policies and regulatory actions, including
those of the Federal Energy Regulatory Commission (FERC), the Florida Public Service Commission (FPSC) and the legislatures and utility commissions of other
states in which FPL Group has operations, and the Nuclear Regulatory Commission (NRC), with respect to, among other things, allowed rates of return, industry
and rate structure, operation of nuclear power facilities, operation and construction of plant facilities, operation and construction of transmission facilities,
acquisition, disposal, depreciation and amortization of assets and facilities, recovery of fuel and purchased power costs, decommissioning costs, return on
common equity and equity ratio limits, and present or prospective wholesale and retail competition (including but not limited to retail wheeling and transmission
costs). The FPSC has the authority to disallow recovery by FPL of any and all costs that it considers excessive or imprudently incurred. The regulatory process
generally restricts FPL's ability to grow earnings and does not provide any assurance as to achievement of earnings levels.
FPL Group and FPL are subject to extensive federal, state and local environmental statutes as well as the effect of changes in or additions to applicable statutes,
rules and regulations relating to air quality, water quality, waste management, wildlife mortality, natural resources and health and safety that could, among other
things, restrict or limit the output of certain facilities or the use of certain fuels required for the production of electricity and/or require additional pollution control
equipment and otherwise increase costs. There are significant capital, operating and other costs associated with compliance with these environmental statutes,
rules and regulations, and those costs could be even more significant in the future.
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FPL Group and FPL operate in a changing market environment influenced by various legislative and regulatory initiatives regarding deregulation, regulation or
restructuring of the energy industry, including deregulation or restructuring of the production and sale of electricity. FPL Group and its subsidiaries will need to
adapt to these changes and may face increasing competitive pressure.
•FPL Group's and FPL's results of operations could be affected by FPL's ability to renegotiate franchise agreements with municipalities and counties in Florida.
The operation and maintenance of power generation facilities, including nuclear facilities, involve significant risks that could adversely affect the results of
operations and financial condition of FPL Group and FPL.
The operation and maintenance of power generation facilities involve many risks, including, but not limited to, start up risks, breakdown or failure of equipment,
transmission lines or pipelines, the inability to properly manage or mitigate known equipment defects throughout our generation fleets unless and until such defects
are remediated, use of new technology, the dependence on a specific fuel source, including the supply and transportation of fuel, or the impact of unusual or
adverse weather conditions (including natural disasters such as hurricanes), as well as the risk of performance below expected or contracted levels of output or
efficiency. This could result in lost revenues and/or increased expenses, including, but not limited to, the requirement to purchase power in the market at
potentially higher prices to meet contractual obligations. Insurance, warranties or performance guarantees may not cover any or all of the lost revenues or
increased expenses, including the cost of replacement power. In addition to these risks, FPL Group's and FPL's nuclear units face certain risks that are unique to
the nuclear industry including, but not limited to, the ability to store and/or dispose of spent nuclear fuel, the potential payment of significant retrospective insurance
premiums, as well as additional regulatory actions up to and including shutdown of the units stemming from public safety concerns, whether at FPL Group's and
FPL's plants, or at the plants of other nuclear operators. Breakdown or failure of an operating facility of FPL Energy may prevent the facility from performing under
applicable power sales agreements which, in certain situations, could result in termination of the agreement or incurring a liability for liquidated damages.
The construction of, and capital improvements to, power generation facilities involve substantial risks. Should construction or capital improvement efforts be
unsuccessful, the results of operations and financial condition of FPL Group and FPL could be adversely affected.
•FPL Group's and FPL's ability to successfully and timely complete their power generation facilities currently under construction, those projects yet to begin
construction or capital improvements to existing facilities within established budgets is contingent upon many variables and subject to substantial risks. Should
any such efforts be unsuccessful, FPL Group and FPL could be subject to additional costs, termination payments under committed contracts, and/or the write-off of
their investment in the project or improvement.
The use of derivative contracts by FPL Group and FPL in the normal course of business could result in financial losses that negatively impact the results of
operations of FPL Group and FPL.
FPL Group and FPL use derivative instruments, such as swaps, options and forwards to manage their commodity and financial market risks, and to a lesser
extent, engage in limited trading activities. FPL Group could recognize financial losses as a result of volatility in the market values of these contracts, or if a
counterparty fails to perform. In the absence of actively quoted market prices and pricing information from external sources, the valuation of these derivative
instruments involves management's judgment or use of estimates. As a result, changes in the underlying assumptions or use of alternative valuation methods
could affect the reported fair value of these contracts. In addition, FPL's use of such instruments could be subject to prudency challenges and if found imprudent,
cost recovery could be disallowed by the FPSC.
FPL Group's competitive energy business is subject to risks, many of which are beyond the control of FPL Group, that may reduce the revenues and adversely
impact the results of operations and financial condition of FPL Group.
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•There are other risks associated with FPL Group's competitive energy business. In addition to risks discussed elsewhere, risk factors specifically affecting FPL
Energy's success in competitive wholesale markets include the ability to efficiently develop and operate generating assets, the successful and timely completion of
project restructuring activities, maintenance of the qualifying facility status of certain projects, the price and supply of fuel (including transportation), transmission
constraints, competition from new sources of generation, excess generation capacity and demand for power. There can be significant volatility in market prices for
fuel and electricity, and there are other financial, counterparty and market risks that are beyond the control of FPL Energy. FPL Energy's inability or failure to
effectively hedge its assets or positions against changes in commodity prices, interest rates, counterparty credit risk or other risk measures could significantly
impair FPL Group's future financial results. In keeping with industry trends, a portion of FPL Energy's power generation facilities operate wholly or partially without
long-term power purchase agreements. As a result, power from these facilities is sold on the spot market or on a short-term contractual basis, which may affect
the volatility of FPL Group's financial results. In addition, FPL Energy's business depends upon transmission facilities owned and operated by others; if
transmission is disrupted or capacity is inadequate or unavailable, FPL Energy's ability to sell and deliver its wholesale power may be limited.
FPL Group's ability to successfully identify, complete and integrate acquisitions is subject to significant risks, including the effect of increased competition for
acquisitions resulting from the consolidation of the power industry.
•FPL Group is likely to encounter significant competition for acquisition opportunities that may become available as a result of the consolidation of the power
industry, in general, as well as the passage of the 2005 Energy Act. In addition, FPL Group may be unable to identify attractive acquisition opportunities at
favorable prices and to successfully and timely complete and integrate them.
Because FPL Group and FPL rely on access to capital markets, the inability to maintain current credit ratings and access capital markets on favorable terms may
limit the ability of FPL Group and FPL to grow their businesses and would likely increase interest costs.
FPL Group and FPL rely on access to capital markets as a significant source of liquidity for capital requirements not satisfied by operating cash flows. The
inability of FPL Group, FPL Group Capital Inc and FPL to maintain their current credit ratings could affect their ability to raise capital on favorable terms,
particularly during times of uncertainty in the capital markets, which, in turn, could impact FPL Group's and FPL's ability to grow their businesses and would likely
increase their interest costs.
Customer growth in FPL's service area affects FPL Group's results of operations.
FPL Group's results of operations are affected by the growth in customer accounts in FPL's service area. Customer growth can be affected by population growth
as well as economic factors in Florida, including job and income growth, housing starts and new home prices. Customer growth directly influences the demand for
electricity and the need for additional power generation and power delivery facilities at FPL.
Weather affects FPL Group's and FPL's results of operations.
FPL Group's and FPL's results of operations are affected by changes in the weather. Weather conditions directly influence the demand for electricity and natural
gas and affect the price of energy commodities, and can affect the production of electricity at wind and hydro-powered facilities. FPL Group's and FPL's results of
operations can be affected by the impact of severe weather which can be destructive, causing outages and/or property damage, may affect fuel supply, and could
require additional costs to be incurred. At FPL, recovery of these costs is subject to FPSC approval.
FPL Group and FPL are subject to costs and other effects of legal proceedings as well as changes in or additions to applicable tax laws, rates or policies, rates of
inflation, accounting standards, securities laws and corporate governance requirements.
•FPL Group and FPL are subject to costs and other effects of legal and administrative proceedings, settlements, investigations and claims, as well as the effect of
new, or changes in, tax laws, rates or policies, rates of inflation, accounting standards, securities laws and corporate governance requirements.
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Threats of terrorism and catastrophic events that could result from terrorism may impact the operations of FPL Group and FPL in unpredictable ways.
FPL Group and FPL are subject to direct and indirect effects of terrorist threats and activities. Generation and transmission facilities, in general, have been
identified as potential targets. The effects of terrorist threats and activities include, among other things, terrorist actions or responses to such actions or threats,
the inability to generate, purchase or transmit power, the risk of a significant slowdown in growth or a decline in the U.S. economy, delay in economic recovery in
the U.S., and the increased cost and adequacy of security and insurance.
The ability of FPL Group and FPL to obtain insurance and the terms of any available insurance coverage could be affected by national, state or local events and
company-specific events.
FPL Group's and FPL's ability to obtain insurance, and the cost of and coverage provided by such insurance, could be affected by national, state or local events
as well as company-specific events.
FPL Group and FPL are subject to employee workforce factors that could affect the businesses and financial condition of FPL Group and FPL.
FPL Group and FPL are subject to employee workforce factors, including loss or retirement of key executives, availability of qualified personnel, collective
bargaining agreements with union employees and work stoppage that could affect the businesses and financial condition of FPL Group and FPL.
The risks described herein are not the only risks facing FPL Group and FPL. Additional risks and uncertainties not currently known to FPL Group or FPL, or that
are currently deemed to be immaterial, also may materially adversely affect FPL Group's or FPL's business, financial condition and/or future operating results.
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